Corporate vs human welfare: The story of Drax

There is no means-testing for corporate welfare payments.

Prem Sikka is an Emeritus Professor of Accounting at the University of Essex and the University of Sheffield, a Labour member of the House of Lords, and Contributing Editor at Left Foot Forward.

The class war is deeply embedded in UK politics. Major political parties have declared war on low and middle income families, the old, sick, poor and disabled. Real wages are depressed. Millions are condemned to misery as governments are ruthlessly cutting social security benefits. However, hardly any questions are asked about corporate welfare and payment of free money to corporations.

Demand for social security benefits is fuelled by inequitable distribution of income and wealth, poverty, low income, lack of healthcare, corporate profiteering and many others factors. Yet UK governments have obsessively pushed austerity and low wages. Median gross wage (May 2025) of an employee is £30,252 a year; £25,293 after paying income tax and national insurance. Despite economic growth average real wage is stuck at the 2008 level. Work doesn’t pay enough. 37% of Universal Credit claimants are in work. Some 16m people, including 5.2m children, are living in families in poverty. Some 9.3m people, including 3m children, face hunger and hardship, and increasingly rely upon food banks, charities and social security benefits for survival. As a result of insecurity, anxiety and depression, one in four 16-24 olds in England have a mental health condition.

At the same time, 1% of the population has more wealth than 70% of the UK population combined. Just 50 families have more wealth than 34m people.  Governments are averse to taxing corporations and the rich, and target low and middle income families. The richest fifth pay 30% of their gross household income in direct taxes; the poorest fifth pay 16%. The richest fifth pay 11% of disposable household income in indirect taxes; the poorest fifth pay 27%. Altogether, the poorest pay a higher proportion of income in taxes than the richest.

The squeeze on incomes is accompanied by unchecked corporate profiteering. Corporate executives are incentivised to increase profits and regulators are required to promote growth of industries. Welfare of citizens is the inevitable casualty.  Just consider the energy sector. Since 2020, the 20 biggest energy companies have reported operating profits of over £514bn. 6.1m households have been pushed into fuel poverty. Some 128,000 people, including 110,000 pensioners, a year die in fuel poverty. Yet governments want to cut benefits.

Social security benefits provide safety net for the old, sick, poor, disabled and the unfortunate, but it has been eroded, particularly under the 2010-2024 Conservative administration. Over the years, the amount of benefits has been frozen and their real value eroded whilst the cost of living has risen sharply. Through the Universal Credit and Personal Independence Payment Bill (known as the Welfare Bill), the Labour government is seeking to cut welfare budget by £5bn a year. Around 800,000 disabled people are likely to lose some of their benefits. Last year, the Labour decided to continue with the previous government’s two-child benefit cap which has pushed 350,000 children into deep poverty and another 700,000 into less deep poverty. As part of a psychological war the government is taking powers to snoop on the bank accounts of millions of benefit claimants, ostensibly to combat benefit fraud. The equivalent powers are not being taken to deal with beneficiaries of tax fraud, illicit financial flows, corporate frauds or price gouging.

The determination to cut welfare budget is not matched by focus on cutting corporate welfare in the form of grants, subsidies and guarantees. Billions of Pounds have been handed to agriculture, arts,  auto, banks, capital markets, energy, gas, oil, rail, steel, telecom, water and more without any means-testing. The state could support industry by acquiring an equity stake or by providing repayable loans, but instead money is freely given. Unsurprisingly, the bosses of Avanti described the handouts as “free money”. This is supplemented by numerous tax concessions and turning a blind eye to corporate profiteering.

Subsidies for companies producing electricity from biomass provide an example of how free money is showered on highly profitable companies.

Corporate Welfare: Biomass Subsidies

The UK experiences energy shortfalls at times of high demand and when weather is not conductive to production of energy from solar, wind and other renewable sources. This could be addressed by better transmission and storage facilities, and investment in alternative sources such as nuclear, gas and hydro power. But the privatised energy sector has not done so. At times of high winds, the government pays wind farms vast sums to turn-off turbines because the national grid does not have the capacity to store or transmit electricity. 

Biomass has been chosen to produce electricity even though wood burning power plants emit 150% the CO2 of coal, and 300 – 400% the CO2 of natural gas, per unit energy produced. Biomass produces around 5% of the UK electricity. 

Companies producing electricity from biomass have long been subsidised. A 2025 report by the Public Accounts Committee noted that: “Since 2002, the government has provided some £22 billion of support for businesses and households using biomass to generate power and heat including £6.5 billion for Drax, the biggest single recipient”. 

Drax is estimated to have burnt over 300 million trees. The contract with Drax comes to end in 2026/27, and is being renewed (see below). Unlike coal and gas power generators, biomass power generators do not pay for their carbon emissions because successive governments have classified biomass-fuelled electricity generation as a renewable energy source. Even if true it would take 50-100 year for a tree to grow and absorb carbon created by wood burning, assuming that there is sufficient suitable land and labour. Drax benefits from multiple subsidy schemes. Altogether, subsidy for Drax for the period 2012 to 2027 alone is  around £11bn.

In 2023, Drax emitted 11.5m tonnes of carbon and is the biggest single UK polluter. It imports wood pellets from North America for its power station in North Yorkshire. Every megawatt-hour of electricity produced from biomass costs around £160, which is double the price of electricity produced from gas, which many think is the most costly resource for producing electricity. The Public Accounts Committee concluded: “We are not convinced the transitional support agreement between DESNZ [the Department for Energy Security and Net Zero] and Drax provides good value for money for consumers.”

Regardless, the government has extended the contract with Drax and other biomass producers until 2031 even though it does not provide energy security. Reliance on foreign imports comes with market, pricing and political risks. Mega profits are guaranteed even though annual subsidies are reduced. Total subsidies for Drax alone could be another £2.5bn.

Free money is showered on Drax even though it has not been truthful. In August 2024 Ofgem, the energy regulator, investigated Drax after whistle-blowers accused it of burning wood from unsustainable sources. Drax was fined £25m and Ofgem said: “There are no excuses for Drax’s admission that it did not comply with its mandatory requirement to give Ofgem accurate and robust data”.

Despite promises BBC reported that the company is “still burning rare forest wood”.  In 2015, Drax was fined £28m for failing to meet environmental targets; £7m in 2024 for overcharging; £6.1m in 2023 for breaching of its Electricity Generation Licence. It has been a serial offender.

People and businesses have not benefitted from Drax subsidies. The UK has the fourth highest electricity price in the world for households, and the highest electricity price for industry in the developed world. People are hit twice. Firstly, higher energy bills; secondly, higher taxes to cover subsidies and the high energy bills for all government departments.

The only beneficiaries from free money are Drax shareholders and executives. In 2024, Drax reported operating profits of £1.06bn; and £1.06bn in 2023. The 2024 profits were boosted by subsidy of £869m or more than £2m a day, and £539m in 2023. It paid £97m dividend in 2024 and £89m in 2023. The company is also handing £300m to shareholders through a share buyback programme.

There is sharp contrast between the way governments approach human welfare and corporate welfare. The sick, old, poor and disabled are demonised and scapegoated for the country’s economic problems. They need benefits because of inequitable distribution of income and wealth, poor healthcare system, low wages and unchecked corporate profiteering. Governments focus on social security benefits and do little about the factors that push people into poverty and the need for benefits.

There is no means-testing for corporate welfare payments. As the case of Drax shows, highly profitable companies are handed subsidies even though they are serial offenders, huge polluters, produce electricity at sky-high prices and mislead regulators. Free money from the neoliberal magic tree flows directly from the public purse to shareholders and executives.

Governments can support companies such as Drax by taking an equity stake or by giving repayable loans. At least, that way there is something for the people. But money is freely handed even when parliamentary committees say that it is a bad deal.

Such partisan policies draw attention to corporate capture of the state and cannot promote confidence in the institutions of government.

Image credit: Alan Murray-Rust – Creative Commons